Inflation falls to 2.4%

17 July 2012

Consumer prices inflation fell to 2.4% in June, down from 2.8% in May, thanks to a drop in the price of clothing, transport and food.

The Consumer Prices Index (CPI) measure of inflation is now at its lowest level since November 2009.

The Retail Prices Index (RPI), which includes mortgage interest payments, fell by 0.3% to 2.8%, due to the falling price of fuel. However, the rising cost of housing and leisure goods put pressure on the RPI.

Azad Zangana, European economist at Schroders, says that the UK's inflation rate "is only just beginning to reflect the weakness in the economy".

"Past increases in taxes have caused a squeeze on household spending power, which in turn is forcing retailers and service providers to scale back price increases," he says.

Zangana adds: "Overall, the latest inflation numbers help justify the Bank of England's decision to expand its quantitative easing programme earlier this month, and could even lead the Monetary Policy Committee to add further stimulus in the future."

From a savings perspective, a basic-rate taxpayer now needs a savings account paying 3% a year, according to Moneyfacts, while a higher-rate taxpayer needs an account paying at least 4% to negate the effects of inflation.

Sylvia Waycot, spokeswoman for Moneyfacts, says that the fall in CPI is welcome, although not enough to cause celebration for savers.

"Today's news means that there are now only 278 out of 1,122 standard savings accounts that negate the effects of tax and inflation. The silver lining is that last month there was a choice of only 210 accounts," she adds.

This article was written by our sister website Money Observer

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